Investment decisions should be guided by asset allocation, which is based on your investment objectives, investment horizon and risk appetite.
Back in January 2020 when the news about Coronavirus started flowing in, who would have thought that the spread of infection could have serious long-term implications on one’s finances? While the full impact from COVID-19 may be yet to be seen, already people are reeling under pressure on account of pay-cuts and job-losses. While the discretionary expense may be down because of the lockdown, managing household expenses with limited resources is a matter for concern. However, one also needs to keep an eye on the financial goals and try to ensure that they are on track.
FE Online found out from Rahul Jain, Head – Edelweiss Wealth Management whether the generation of wealth is important in these times or should focus on capital preservation. He also gave 5 essential money handling tips in these times. Excerpts from the interview.
Wealth generation or capital preservation? How should individuals approach them in these times?
Wealth generation and preservation of capital, are equally important aspects of wealth management – what is created, has to be protected. In difficult and uncertain times like these, most investors naturally prefer capital preservation, favouring to sit on cash reserves and postponing investment decisions. However, times of volatility do offer opportunities that you need to leverage. Remember, investment decisions should be guided by asset allocation, which is based on your investment objectives, investment horizon and risk appetite. With astute asset allocation, investors can objectively decide to apportion their capital reserves between high-risk equity (wealth creation) and low-risk debt (wealth preservation).
What are those 5 most essential money matters that one needs to attend to in these times?
a. Get the portfolio evaluated by your wealth advisor to ensure it is well-aligned to your objectives of risk and returns
b. Ensure that your portfolio comprises fundamentally sound stocks, mutual funds, bonds, deposits, etc. Undertake a rejig, if required to replace bad stocks with potential outperformers.
c. Maintain a contingency fund, equivalent to 6 months of daily expenses, to tide over possible pay cuts or job losses.
d. Ensure that you and your family are adequately covered against unforeseen medical expenses, with comprehensive health insurance.
e. Invest in life insurance and consult your wealth advisor on what is appropriate and adequate as cover. The thumb rule is to have cover equivalent to 15x of annual income.
As far as short-long term goals are concerned, where should one park the funds now?
For short-term goals, which are say, 2-3 years away, I would recommend a portfolio consisting of high-quality debt instruments like fixed deposits, non-convertible debentures and debt funds. All investment decisions should preferably be taken in consultation with your wealth advisor.
How should one control the investing behaviour in the environment that we are in?
Uncertain times like these are full of fear, anxiety and stress and often come with once-in-a-lifetime investment opportunities. If you can control your emotions and consider the situation objectively, not only will you be able to identify these opportunities, but you can use them to your advantage, by quickly acting on them.